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can any one help me with this question and explain in a few words how to do this as well thanks
.The trial balance of Knights & Knaves showed sales revenue of $700,000 and cost of goods sold of $400,000 for 20X7. However, subsequently, the following errors were discovered.•An irrecoverable receivable of $20,000 had been deducted from sales revenue.
•A return outwards of $5,000 had been wrongly posted to the sales returns account, but had been correctly entered into the supplier’s personal account.
What would be the gross margin after correction of these errors?Select one:
54.7%
57.7%
46.5%
45.5%Hi rafay04,
The errors were:
1. Irrecoverable receivable/debts do not decrease sales revenue, it is an expense and is deducted after the gross profit is calculated. Correction: 20,000 should be added to sales revenue.
2. A return outwards of $5,000 had been wrongly posted to the sales returns account. This error resulted in decreased sales revenue and overstated purchase. Correction: 5,000 should be added to sales and deducted from the cost of sales.
Sales revenue = 700,000+20,000+5,000 = 725,000
Cost of sales = 400,000-5,000 = 395,000
Gross profit = 330,000
Gross profit margin = 330,000/725,000 x 100 =45.5%Regards,
Tammi
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